Independent Auditor’s Report FS 2016.pdf · Independent Auditor’s Report Annual Report 2016 21. Statement of Financial Position As at 31 December 2016 Note 31 December 2016 AFN

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF AFGHANISTAN INTERNATIONAL BANK

OpinionWe have audited the accompanying financial statements of Afghanistan International Bank (the Bank), which comprise the statement of financial position as at 31 December 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies.

In our opinion, the financial statements give a true and fair view of the financial position of the Bank as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with the accounting framework as stated in note 2 to the financial statements.

Basis for OpinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the financial statements in Afghanistan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other MatterThe financial statements of the Bank for the year ended 31 December 2015 were audited by another auditor who expressed an unmodified opinion on those statements on 19 March 2016.

Responsibilities of Management and Those Charged with Governance for the Financial StatementsManagement is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting framework as stated in note 2 to the financial statements and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Ernst & Young Ford Rhodes Sidat Hyder

Chartered Accountants

Date: 11 March 2017

Kabul, Afghanistan

Engagement Partner: Shabbir Yunus Khairullah

Ernst & Young Ford Rhodes Sidat Hyder

Chartered Accountants

House 1013, Street 2

Shirpoor raod, Kabul

Afghanistan

Tel: +93 (0) 752 055 025

[email protected]

ey.com/pk

Independent Auditor’s Report

Annual Report 2016 21

Statement of Financial PositionAs at 31 December 2016

Note31 December 2016

AFN '000'

31 December 2015 RestatedAFN '000'

01 January 2015Restated

AFN '000'

ASSETS

Cash and balances with Da Afghanistan Bank 5 10,452,572 17,816,406 11,163,004

Balances with other banks 6 6,606,085 5,042,671 11,624,614

Placements – net 7 19,313,157 19,797,852 14,898,004

Investments – net 8 14,382,579 13,532,385 14,440,790

Loan and advances to customers – net 9 3,729,388 3,457,852 2,889,723

Receivables from financial institutions 10 522,484 172,482 103,017

Operating fixed assets 11 1,625,342 1,047,317 491,411

Intangible assets 12 527,457 572,948 559,094

Deferred tax assets 13 21,440 20,641 –

Other assets 14 1,007,100 459,885 365,529

Total assets 58,187,604 61,920,439 56,535,186

LIABILITIES

Customers' deposits 15 54,077,642 57,997,526 52,908,347

Deferred income 15,824 27,110 8,531

Deferred tax liabilities – – 14,604

Other liabilities 16 193,068 207,565 222,837

Total liabilities 54,286,534 58,232,201 53,154,319

EQUITY

Share capital 17 1,465,071 1,465,071 1,465,071

Capital reserves 18 218,600 192,646 168,262

Retained earnings 2,211,835 2,053,817 1,734,514

Surplus/(deficit) on revaluation on available for sale investments – net 5,564 (23,296) 13,020

Total equity 3,901,070 3,688,238 3,380,867

Total equity and liabilities 58,187,604 61,920,439 56,535,186

Contingencies and commitments 19

Chief Executive Officer Chief Financial Officer Chairman

The annexed notes 1 to 35 form an integral part of these financial statements.

22 Afghanistan International Bank

Statement of Comprehensive IncomeFor the year ended 31 December 2016


AFN '000'


Interest income 20 1,071,271 1,080,742

Interest expense 21 (13,346) (6,016)

Net interest income 1,057,925 1,074,726

Fee and commission income 22 788,349 679,548

Fee and commission expense 23 (31,492) (16,672)

Net fee and commission income 756,857 662,876

Income from dealing in foreign currencies 24 144,023 193,633

1,958,805 1,931,235

Other income/(expense) 25 55,717 (1,205)

(Loss)/gain on sale of securities (477) 3,659

Provision on placements (65,222) (24,623)

Provision on investments (1,788) (13,555)

Provision against loan losses (79,818) (98,873)

General and administrative expenses 26 (1,299,302) (1,243,500)

PROFIT BEFORE INCOME TAX 567,915 553,138

Taxation 27 (48,843) (65,451)

PROFIT FOR THE YEAR 519,072 487,687

OTHER COMPREHENSIVE INCOME

Items that may be classified to profit and loss subsequently

Net changes in fair value of available for sale financial instruments 36,554 (45,395)

Related tax (7,215) 9,079

Other comprehensive income/(loss), net of tax 29,339 (36,316)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 548,411 451,371

Earnings per share 30 17.30 16.26




Statement of Cash FlowsFor the year ended 31 December 2016


AFN '000'


CASH FLOWS FROM OPERATING ACTIVITIES

Profit for the year 519,072 487,687

Adjustments for:

Provision against loans and advances 79,818 98,873

Depreciation 50,651 44,805

Amortization 99,056 73,508

Provision on investment 1,788 13,555

Provision on placements 65,222 24,623

Effect of exchange rate fluctuation on cash held – (2,687,947)

Net interest income (1,057,925) (1,074,726)

Income tax expense 48,843 65,451

(193,475) (2,954,171)

Changes in operating assets and liabilities

Receivable from financial institutions (350,004) (69,465)

Required reserve maintained with DAB 244,839 (298,275)

Cash margin held with other banks 8,962 128,487

Loans and advances to customers – net (351,353) (667,003)

Other assets (309,771) 5,061

Deferred income on commercial letter of credit and guarantees (11,286) 18,579

Customers’ deposits (3,919,884) 5,089,179

Other liabilities (14,497) (15,271)

(4,896,468) 1,237,121

Interest received 998,190 998,702

Interest paid (13,346) (6,016)

Income tax paid (221,219) (108,993)

Net cash (used in)/from operating activities (4,132,843) 2,120,814

CASH FLOWS FROM INVESTING ACTIVITIES

Capital work-in-progress (586,110) (545,402)

Acquisition of operating fixed assets (42,568) (55,309)

Acquisition of intangible assets (53,565) (87,362)

Placements (with maturity more than three months) (3,746,107) (2,077,591)

Investments (815,904) 849,455

Net cash used in investing activities (5,244,254) (1,916,209)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividend paid (335,100) (144,000)

Net cash used in financing activities (335,100) (144,000)

Net (decrease)/increase in cash and cash equivalents (9,712,197) 60,605

Cash and cash equivalents at 01 January 28,171,173 25,422,621

Effect of exchange rate fluctuation on cash held – 2,687,947

Cash and cash equivalents at 31 December 29 18,458,976 28,171,173




Statement of Changes in EquityFor the year ended 31 December 2016

Sharecapital

AFN ‘000

(Deficit)/surpluson available for

sale investmentsAFN ‘000

Capitalreserve

AFN ‘000

Retainedearnings

AFN ‘000Total

AFN ‘000

Balance as at 31 December 2014 1,465,071 13,020 168,262 1,431,185 3,077,538

Effect of restatement due to prior period errors (refer to note 33) – – – 303,329 303,329

Balance as at 31 December 2014 Restated 1,465,071 13,020 168,262 1,734,514 3,380,867

Balance as at 01 January 2015 1,465,071 13,020 168,262 1,734,514 3,380,867

Profit for the year – restated – – – 487,687 487,687

Other comprehensive income, net of tax:

Fair value reserve (available-for-sale financial assets):

Net change in fair value – (45,395) – – (45,395)

Related tax – 9,079 – – 9,079

Total comprehensive income – restated

Transferred to capital reserve – – 24,384 (24,384) –

Transactions with owners of the bank

Dividend paid – – – (144,000) (144,000)

Balance as at 31 December 2015 – restated 1,465,071 (23,296) 192,646 2,053,817 3,688,238

Total comprehensive income

Profit for the year – – – 519,072 519,072

Other comprehensive income, net of tax:

Fair value reserve (available-for-sale financial assets):

Net change in fair value – 36,554 – – 36,554

Reclassification adjustments relating to available for sale investments disposed off during the year – net – (477) – – (477)

Related tax on:

Available for sale financial assets – (7,310) – – (7,310)

Loss on disposal available for sale investments during the year – 95 – – 95

Total comprehensive income

Transferred to capital reserve – – 25,954 (25,954) –

Transactions with owners of the bank

Interim dividend paid – – – (335,100) (335,100)

– 28,862 25,954 158,018 212,834

Balance as at 31 December 2016 1,465,071 5,564 218,600 2,211,835 3,901,072




Notes to the Financial StatementsFor the year ended 31 December 2016

1. STATUS AND NATURE OF BUSINESS

Afghanistan International Bank (the Bank) was registered with Afghan Investment Support Agency (AISA) on 27 December 2003 and received formal commercial banking license on 22 March 2004 from Da Afghanistan Bank (DAB), the central bank of Afghanistan, to operate nationwide. The Bank obtained Islamic banking license from DAB via letter no. 1863/1890 dated 21 July 2014.

The Bank initially was incorporated as a limited liability company and domiciled in Afghanistan, however on the basis that the Bank’s capital is divided into shares, the status of the Bank changed from limited liability to Corporation under the Corporations and Limited Liability Companies Law, effective from 4 May 2016. The principal business place of the Bank is at AIB head office, Shahr-e-now, Haji Yaqoob Square, Shahabuddin Watt, Kabul, Afghanistan.

The Bank has been operating as one of the leading commercial banking service provider in Afghanistan. The Bank has 35 branches and 4 cash outlets (2015: 33 branches and 4 cash outlets) in operation.

2. BASIS OF PREPARATION AND MEASUREMENT

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board and the Law of Banking in Afghanistan. Whenever the requirement of the Law of Banking in Afghanistan differs with the requirements of the IFRS, the requirement of the Law of Banking in Afghanistan takes precedence.

These consolidated financial statements have been prepared under the historical cost convention except that certain investments, derivative financial instruments and forward foreign exchange contracts are stated at fair value.

These financial statements comprise statement of financial position, statement of comprehensive income as a single statement, statement of changes in equity, statement of cash flows and the accompanying notes.

The Bank classifies its expenses by the ‘function of expense’ method.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

2.1 The Bank has adopted the following accounting standards, amendments and interpretations of IFRSs which became effective for the current year:

Standard or InterpretationIFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements – Investment Entities: Applying the Consolidation Exception (Amendment)

IFRS 11 Joint Arrangements – Accounting for Acquisition of Interest in Joint Operation (Amendment)

IAS 1 – Presentation of Financial Statements – Disclosure Initiative (Amendment)

IAS 16 Property, Plant and Equipment and IAS 38 intangible assets – Clarification of Acceptable Method of Depreciation and Amortization (Amendment)

IAS 16 Property, Plant and Equipment IAS 41 Agriculture – Agriculture: Bearer Plants (Amendment)

IAS 27 – Separate Financial Statements – Equity Method in Separate Financial Statements (Amendment)

Improvements to Accounting Standards Issued by the IASB in September 2014IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Changes in methods of disposal

IFRS 7 Financial Instruments: Disclosures – Servicing contracts

IFRS 7 Financial Instruments: Disclosures – Applicability of the offsetting disclosures to condensed interim financial statements

IAS 19 Employee Benefits – Discount rate: regional market issue

IAS 34 Interim Financial Reporting – Disclosure of information ‘elsewhere in the interim financial report’

The adoption of the above amendments, improvements to accounting standards and interpretations did not have any effect on the financial statements.

2.2 The following new or amended standards are not expected to have a significant impact on the Bank’s financial statements.

Standard or Interpretation

Effective date(annual periodsbeginningon or after)

IFRS 2: Share-based Payments – Classification and Measurement of Share – based Payments Transactions (Amendments)

01 January 2018

IFRS 10 Consolidated Financial Statements and IAS 28 Investment in Associates and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendment)

Not yet finalized

IAS 7 Financial Instruments: Disclosures – Disclosure Initiative – (Amendment)

01 January 2017

IAS 12 Income Taxes – Recognition of Deferred Tax Assets for Unrealized losses (Amendments)

01 January 2017

IFRS 4 Insurance Contracts: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts – (Amendments)

01 January 2018

IAS 40 Investment Property: Transfers of Investment Property (Amendments)

01 January 2018

IFRIC 22 Foreign Currency Transactions and Advance Consideration 01 January 2018

IFRS 9 – Financial Instruments: Classification and Measurement 01 January 2018

IFRS 14 – Regulatory Deferral Accounts 01 January 2016

IFRS 15 – Revenue from Contracts with Customers 01 January 2018

IFRS 16 – Leases 01 January 2018

In addition to the above standards and amendments, improvements to various accounting standards have also been issued by the IASB in December 2016. Such improvements are generally effective for accounting periods beginning on or after 01 January 2017. The Bank expects that such improvements to the standards will not have any impact on the Bank’s financial statements in the period of initial application.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all the periods presented in these financial statements.

3.1 Cash and cash equivalentsFor the purpose of the statement of cash flows, cash and cash equivalents comprise balances with less than three months maturity including cash in hand and at ATM, unrestricted balances with the DAB, balances with banks and placements.

3.2 Financial instrumentsFinancial assets and liabilities are recognized when the Bank becomes a party to the contractual provisions of the instrument, and derecognized when the Bank loses control of the contractual rights that comprise the financial assets, and in case of financial liabilities when the obligation specified in the contract is discharged, cancelled or expired. A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.

These are subsequently measured at fair value, amortized cost or cost, as the case may be. Any gain or loss on de-recognition of financial assets and financial liabilities is included in income for the year.

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in statement of comprehensive income.


When a sales or transfer of held to maturity securities represents a material contradiction with the Bank’s stated intent to hold those securities to maturity or when a pattern of such sales has occurred, any remaining held to maturity securities are reclassified to available for sale. The reclassification is recorded in the reporting period in which the sale or transfer occurs and accounted for as a transfer.

3.3 Financial assetsThe Bank classifies its financial assets in four categories: at fair value through profit or loss, loans and receivables, held to maturity and available for sale investments. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

a) Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss when the financial asset is either held-for-trading or it is designated as at fair value through profit or loss.

A financial asset is classified as held-for-trading if it is acquired principally for the purpose of selling in the short term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives (if any) are also categorized as held for trading unless they are designated as hedges.

Financial assets are designated at fair value through profit or loss at inception when:

- Doing so significantly reduces measurement inconsistencies that would arise if the related derivatives were treated as held for trading and the underlying financial instruments were carried at amortized cost for such as loans and advances to customers or banks and debt securities in issue;

- Certain investments, such as equity investments, that are managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis are designated at fair value through profit or loss;

- Financial instruments, such as debt securities held, containing one or more embedded derivatives significantly modify that cash flows, are designated at fair value through profit or loss; and

- Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on re-measurement recognized in profit or loss.

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the entity intends to sell immediately or in short term, which are classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) those that the entity upon recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Loans and receivables are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortized cost using the effective interest method.

Cash and balances with DAB, balances with other banks, placements, and receivable from financial institutions, loans and advances to customers and security deposits and other receivables are classified under this category.

c) Held-to-maturity (HTM) financial assets

HTM investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. If the Bank were to sell other than an insignificant amount of held-to-maturity financial assets before its maturity, the entire category would be reclassified as available for sale.

HTM investments are carried at amortized cost using the effective interest method, less any impairment losses (see 3.4(a)).

Capital notes with DAB and certain investment bonds are classified under this category.

d) Available-for-sale (AFS) financial assets

AFS financial assets are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

AFS financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.

Regular-way purchases and sales of financial assets at fair value through profit or loss, held-to-maturity and available for sale are recognized on trade-date i.e. the date on which the Bank commits to purchase or sell the asset.

Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of comprehensive income. Financial assets are de-recognised when the rights to receive cash flow from the financial asset have expired or where the Bank has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets carried at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortized cost using the effective interest rate method.

Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income as a part of other income in the period in which they arise. Gains and losses arising from changes in fair value of available-for-sale financial assets are recognized directly in other comprehensive income, until the financial asset is derecognized or impaired.

The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate prevailing at the end of the reporting period. The foreign exchange gains and losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income.

3.4 Impairment of financial assets

a) Assets carried at amortized cost except for loans and advances to customers

The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:

- Delinquency in contractual payments of principal or interest;

- Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales);

- Breach of loan covenants or conditions

- Initiation of bankruptcy proceedings;

- Deterioration of the borrower’s competitive position;

- Deterioration in the value of collateral; and

- Downgrading below investment grade level.

The amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement.



3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

3.4 Impairment of financial assets continued

a) Assets carried at amortized cost except for loans and advances to customers continued

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as and improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of reversal is recognized in the statement of comprehensive income in impairment charge for credit losses.

b) Loans and advances to customers

These are stated net of general provision on loans and advances considered ‘Standard’ and specific provision for non-performing loans and advances’ if any. The outstanding principal of the advances are classified in accordance with the Classification and Loss Reserve Requirement (CLRR) issued by DAB.

i) Standard: These are loans and advances, which are paying in current manner and are adequately protected by sound net worth and paying capability of the borrower or by the collateral, if any, supporting it. A general provision is maintained in the books of account @ 3% (2015: 1.38%) of value of such loans and advances.

ii) Watch: These are loans and advances which are adequately protected by the collateral, if any, supporting it, but are potentially weak. Such advances constitute an unwarranted credit risk, but not to the point of requiring a classification to Substandard. Further, all loans and advances which are past due by 31 to 60 days for principal or interest payments are classified as Watch. A provision is maintained in the books of account not less than 5% of value of such loans and advances.

iii) Substandard: These are loans and advances which are inadequately protected by current sound net worth and paying capacity of the borrower or by collateral, if any, supporting it. Further, all loans and advances which are past due by 61 to 90 days for principal or interest payments are also classified as Substandard. A provision is maintained in the books of account not less than 25% of value of such loans and advances.

iv) Doubtful: These are loans and advances which can be classified as Substandard and have added characteristic that these weaknesses make collection or liquidation in full, on the basis of current circumstances and values, highly questionable and improbable. Further all loans and advances which are past due by 91 to 360 days for principal or interest payments are also classified as Doubtful. A provision is maintained in the books of account not less than 50% of value of such loans and advances.

v) Loss: These are loans and advances which are not collectable and/or such little value that its continuance as a bankable asset is not warranted. Further, all loans and advances which are past due over 361 days for principal and interest payments are also classified as Loss. A provision is maintained in the books of account @100% of value of such loans and advances and then these loans are charged off and the reserve for losses is reduced immediately upon determination of Loss status.

c) Assets classified as available for sale

The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on those financial assets previously recognized in the statement of comprehensive income is removed from equity and recognized in the statement of comprehensive income. Impairment losses recognized in the statement of comprehensive income on equity instruments are not reversed through the statement of comprehensive income. If in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of comprehensive income, the impairment loss is reversed through the statement of comprehensive income, related to an event occurring after the impairment loss was recognized.

3.5 Financial liabilitiesThe Bank classifies its financial liabilities in following categories.

a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are financial liabilities held for trading. A financial liability is classified in this category if incurred principally for the purpose of trading or payment in the short term. Derivatives (if any) are also categorized Jas held for trading unless they are designated as hedges.

b) Other financial liabilities measured at amortized cost

These are non-derivatives financial liabilities with fixed or determinable payments that are not quoted in an active market. These are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost; any differences between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement.

3.6 Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Bank has access at the date. The fair value of a liability reflects its non-performance risk.

When available, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, then the Bank uses valuation techniques that maximizes the use of relevant observable inputs and minimize the use of unobservable all of the factors that market participants would take into account in pricing a transaction.

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Bank determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognized in profit and loss in an appropriate basis over the life of the instrument but no later than when valuation is wholly supported by observable market data or transaction is closed out.

If an asset or a liability measured at fair value has a bid price and an ask price, then the Bank measures assets and long positions at a bid price and liabilities and short position at an ask price.

Portfolio of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Bank on the basis of the net exposure to either market risk or credit risk or measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.

The Bank recognizes transfer between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

3.7 Operating fixed assetsThese are stated at historical cost less accumulated depreciation and impairment, if any, except for land and capital work in progress which is stated at cost less impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the asset.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are recognized in statement of comprehensive income during the financial period in which they are incurred.


Depreciation is calculated using the straight-line method to allocate the depreciable amount of the assets over their estimated useful life as follows:

Useful life

Leasehold improvements 3 to 10 years

Computers 3 to 5 years

Office equipment 3 to 5 years

Furniture and fittings 3 to 10 years

ATMs 5 years

Vehicles 5 years

Depreciation is charged on additions during the year from the month they become available for their intended use while no depreciation is charged in the month of disposal of assets. The residual values, useful lives and depreciation method are reviewed and adjusted, if appropriate, at each statement of financial position date.

Gains and losses on disposal of property and equipment are determined by comparing proceeds with the carrying amount. These are included in other income in the statement of comprehensive income.

3.8 Intangible assetsIntangible assets are capitalized only to the extent that the future economic benefits can be derived by the Bank having useful life of more than one year. Intangible assets are stated at cost less accumulated amortization. Amortization is charged to income applying the straight line method.

i) Computer software

Acquired computer software is capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful life of 3 to 10 years.

ii) License fee

Acquired trademarks and licenses are initially recognized at historical cost and subsequently recognized at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of the licenses over their estimated useful life.

The useful lives of intangibles are reviewed and adjusted, if appropriate, at each statement of financial position date.

3.9 Business combinationAcquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Bank, liabilities incurred by the Bank to the former owners of the acquiree and the equity interests issued by the Bank in exchange for control of the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred.

3.10 GoodwillGoodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Please refer to note 12.2 for further details.

For the purposes of impairment testing, goodwill is allocated to each of the Bank’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in statement of comprehensive income. An impairment loss recognized for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

3.11 Impairment of non-financial assetsNon-financial assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Non-financial assets that are subject to depreciation/amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss or reversal of impairment loss is recognized in the statement of comprehensive income. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Reversal of the impairment losses is restricted to the original cost of the assets.

3.12 Taxation

Current

The current income tax charge is calculated in accordance with Income Tax Law, 2009. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

3.13 Revenue recognitiona) Interest income and expenses for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognized within `interest income’ and `interest expense’ in the statement of comprehensive income using the effective interest rate method.

The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses.

b) Due but unpaid interest income is accrued on overdue advances for periods up to 90 days in compliance with the Banking regulations issued by DAB. After 90 days, overdue advances are classified as non-performing and further accrual of unpaid interest income ceases.

c) Gains and losses on disposal of property and equipment are recognized in the period in which disposal is made.

d) Fees and commission income and expense are recognized on an accrual basis when the service has been provided/received.

e) Fee and commission income that are integral part to the effective interest rate on financial assets and liability are included in the measurement of effective interest rate. Other fee and commission expenses related mainly to the transactions are services fee, which are expensed as the services are received.



3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

3.14 Foreign currency transactions and translation

a) Functional and presentation currency

Items included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the entity operates (the functional currency), which is Afghani (AFN). All amounts have been rounded to the nearest thousands, except when otherwise indicated.

b) Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rate prevailing at the date of the transaction. Foreign currency assets and liabilities are translated using the exchange rate at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of assets and liabilities denominated in foreign currencies are recognized in income currently.

The exchange rate for following currencies against AFN were:

1 USD 1 Euro 1 AED

As at 31 December 2016 66.82 70.01 18.19

As at 31 December 2015 68.37 74.48 18.55

3.15 ProvisionsProvisions are recognized when there are present, legal or constructive obligations as a result of past events; it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amounts can be made. Provision for guarantee claims and other off balance sheet obligations is recognized when intimated and reasonable certainty exists to settle the obligations.

3.16 Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the financial statements when there is a legally enforceable right to offset the recognized amounts and the Bank intends to settle either on a net basis or realize the assets and settle the liabilities simultaneously.

3.17 Dividend DistributionFinal dividend distributions to the Bank’s shareholders are recognized as a liability in the financial statements in the period in which the dividends are approved by the Bank’s shareholders at the Annual General Meeting while interim dividends are recognized in the period in which the dividends are declared by the Board of Supervisors.

3.18 Earnings per shareThe Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is attributable to shareholders of the Bank by the weighted-average number of shares outstanding during the year.

3.19 Employee benefits

Defined contribution plan

Obligations for contributions to defined contribution plans are expensed as the related service is provided and recognised as personnel expenses (salaries and benefits) in profit or loss. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

4. USE OF CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates and judgments will, by definition, rarely equal the related actual results. The material estimates, assumptions and judgments used to measure and classify the carrying amounts of assets and liabilities are outlined below:

a) Provision for loan losses

The Bank reviews loans to customer balances quarterly for possible impairment and records the provision for possible loan losses as per the Bank’s policy and in accordance with DAB regulations as disclosed in note 9.3. The Bank maintains a general provision of 3% (2015: 1.38%) against outstanding loan and advances to customers as at the period end.

The Bank has revised its estimates of general provision against loans and advances to customers. Previously, general provision was maintained at 1.38% of standard loans and advances which has been increased to 3%. The general provision at previous and current rates amounts to AFN 41,623 thousands and AFN 109,588 thousands respectively.

b) Provision of income taxes

The Bank recognizes tax liability in accordance with the provisions of Income Tax Law 2009. The final tax liability is dependent on assessment by Ministry of Finance, Government of Islamic Republic of Afghanistan.

c) General provision on investments and placements

The management also maintains a provision of 0.5% on collective balance of investments (excluding those with DAB and investments in money market fund) and 1% on placements (excluding placements with maturity below 30 days) to cover the counter party risk.

d) Useful life of property and equipment and intangible assets

The Bank reviews the useful life, depreciation method and residual value of property and equipment and intangible assets at each statement of financial position date. Any change in estimates may affect the carrying amounts of the respective items of property and equipment and intangible assets with a corresponding effect on the depreciation/amortization charge.

e) Held-to-maturity investments

The Bank follows the IAS 39 guidance on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held to maturity. This classification requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity.

5. CASH AND BALANCES WITH DA AFGHANISTAN BANK (DAB)

Note2016

AFN ‘0002015

AFN ‘000

Cash in hand 1,357,027 1,329,299

Cash in hand – Islamic banking division 76,114 66,979

Cash at Automated Teller Machines (ATMs) 545,278 328,414

1,978,419 1,724,692

Balances with Da Afghanistan Bank:

Local currency:

- Deposit facility accounts 5.1 1,050,902 650,245

- Required reserve accounts 5.2 4,185,981 4,430,820

- Current accounts 300,329 1,404,871

5,537,212 6,485,936

Foreign currency:

- Current accounts 2,936,941 9,605,778

8,474,153 16,091,714

10,452,572 17,816,406

5.1 This represents interest bearing account carrying interest @ 0.80% (31 December 2015: 0.80%) per annum.

5.2 Required reserve account is being maintained with DAB which is denominated in AFN to meet minimum reserve requirement in accordance with Article 3 “Required Reserves Regulation” of the Banking Regulations issued by DAB. Theses balances are interest free (2015: Interest free).


6. BALANCES WITH OTHER BANKS

Note2016

AFN ‘0002015

AFN ‘000

Outside Afghanistan:

With Standard Chartered Bank

- in nostro accounts 2,375,329 1,825,059

- others 6.1 2,146,777 728,533

4,522,106 2,553,592

With Commerzbank, Germany:

- in nostro accounts 6.2 143,282 1,976,703

- in cash margin held 6.3 93,403 102,365

236,685 2,079,068

With other banks:

Emirates NBD 661,632 313,209

AkBank, Turkey 1,956 4,186

Julius Baer 513,653 92,494

State Commercial Bank of Turkmenistan 669,552 –

IDFC Bank 474 –

Yes Bank, India 27 122

6.4 1,847,294 410,011

6,606,085 5,042,671

6.1 These represent balances with Standard Chartered Bank, Singapore which carries interest @ 0.2% p.a. (2015: 0.2% to 0.3% p.a.) and are available on demand.

6.2 This represents interest bearing nostro accounts and carries interest @ LIBOR – 0.25% (31 December 2015: LIBOR – 0.25%).

6.3 It carries interest @ LIBOR – 0.25% (31 December 2015: LIBOR – 0.25%), held with Commerzbank, Germany against letters of credit issued on behalf of the Bank.

6.4 This includes balances maintained with investment managers and other banks. These are non-interest bearing and available on demand.

7. PLACEMENTS – NET

Note2016

AFN ‘0002015

AFN ‘000

Placements with banks 7.1 19,477,866 19,897,339

19,477,866 19,897,339

General provision held 7.2 & 7.3 (164,709) (99,487)

19,313,157 19,797,852

7.1 These represent overnight and fixed term placements with financial institutions outside Afghanistan up to a maximum period of one year (2015: one year) in USD carrying interest at rates ranging from 0.40% p.a. to 1.75% p.a. (2015: 0.65% p.a. to 1.35% p.a.).

7.2 General provision of 1% (31 December 2015: 0.5%) maintained on placements with maturity of more than 30 days is provided based on DAB requirement to cover the counter party and market risk.

7.3 Movement in provision during the year

2016AFN ‘000

2015AFN ‘000

Balance at 01 January 2016 99,487 74,864

Provision made during the year 65,222 24,623

Balance at 31 December 2016 164,709 99,487

8. INVESTMENTS – NET

Note2016

AFN ‘0002015

AFN ‘000

Available for sale investments:

- Investment bonds 8.1 4,351,290 4,979,052

- Investment in money market fund 8.2 679,702 689,065

5,030,993 5,668,117

Held-to-maturity investments:

- Capital notes with DAB 8.3 1,520,054 1,705,404

- Investment bonds 8.4 7,892,752 6,218,296

9,412,806 7,923,700

14,443,799 13,591,817

General provision held 8.5 (61,220) (59,432)

14,382,579 13,532,385

8.1 These represent investments in bonds having maturity ranging from January 2017 to October 2023 and carrying coupon interest rates ranging from 1% to 11.63% (2015: 0.88% to 10.38%) per annum. These investments are managed by Julius Baer and Emirates NBD on behalf of the Bank.

8.2 These represent investments made in the Emirates Islamic money market funds, a Shariah compliant open ended fund carrying variable rate of returns. These investments are managed by Emirates NBD on behalf of the Bank.

8.3 These represent investments in capital notes issued by DAB up to a maximum period of one year (2015: one year) carrying yield at rates ranging from 3.53% to 6.68% p.a. (2015: 3.54% p.a. to 6.70% p.a.) receivable on maturity of respective notes.

8.4 These represent investments in bonds from various financial institutions and sovereign corporates carrying coupon interest rates ranging from 1.50% to 7.75% (2015: 1.50% to 7.75%). These investments have maturity ranging from January 2017 to October 2022. These investments are classified as “Held-to-maturity” because of the Bank’s ability and intention to hold these investments up to maturity. These investments are managed by Julius Baer and Emirates NBD on behalf of the Bank.

8.5 General provision of 0.5% on collective investments (excluding capital notes with DAB and Investment in money market fund) is provided to cover the market and counter party risk.

9. LOANS AND ADVANCES TO CUSTOMERS – NET

Note2016

AFN ‘0002015

AFN ‘000

Overdrafts 9.1 3,489,206 3,333,061

Term loans 9.2 343,016 277,955

Consumer loans 9.3 44,226 29,441

3,876,448 3,640,457

Provision against loans and advances 9.4 (147,060) (182,605)

3,729,388 3,457,852

Particulars of loans and advances – (gross)

Short term (for up to one year) 3,101,287 3,450,149

Non-current (for over one year) 775,161 190,308

3,876,448 3,640,457

9.1 These represent balances due from customers at various interest rates ranging from 10% to 15% p.a. (2015: 11% to 15% p.a.) and are secured against mortgage of properties, personal guarantees, lien on equipment, pledge of stocks and/or assignment of receivables of the borrowers. The overdrafts are repayable on demand. These include loans and advances to customers amounting to AFN 440,702 thousands (2015: AFN 357,419 thousands) which are partially backed by Deutsche Investitions-und Entwicklungsgesellschaft mbh (ACGF) guarantees to the extent defined in agreement with ACGF.



9. LOANS AND ADVANCES TO CUSTOMERS – NET CONTINUED

9.2 Term loans carry interest at various rates ranging from 11% to 18% p.a. (2015: 13% to 18% p.a.) and are secured against mortgage of properties, personal guarantees, lien on equipment, pledge of stocks and/or assignment of receivables of the borrowers. These include loans and advances to customers amounting to AFN 137,594 thousands (2015: AFN 63,365 thousands) which are partially backed by DEG guarantee to the extent defined in the agreement with DEG. Term loans also include loans issued amounting to AFN nil thousands (2015: AFN 51,681 thousands) which are partially (50%) backed by Credit Development Authority of the U.S. Agency for International Development (USAID).

Term loans include Small Business loans amounting to AFN 17,320 thousands (2015: AFN 47,417 thousands) carrying interest rate ranging from 13% to 18% p.a. (2015: 13% to 18% p.a.). These loans are secured against deposit of original title deed, negative lien letter, corporate guarantee by a registered company and hypothecation of movable fixed assets as collateral after registration from DAB.

9.3 These represent consumer loans due from individual payroll account holders, employees of corporate customers having payroll account with the Bank carries interest up to @15% (2015: 15%) and credit card carries interest up to @36% (2015: 36%) on annual basis outstanding balances. General provision of 3% (2015: 2%) has been maintained on these balances.

9.4 Provision against loans and advances

Note

2016 2015

SpecificAFN ‘000

GeneralAFN ‘000

TotalAFN ‘000

SpecificAFN ‘000

GeneralAFN ‘000

TotalAFN ‘000

Opening 140,982 41,623 182,605 82,016 57,571 139,587

Charge for the year 38,939 77,022 115,961 148,007 14,541 162,548

Reversal of provision (28,198) (7,945) (36,143) (23,399) (40,276) (63,675)

10,741 69,077 79,818 124,608 (25,735) 98,873

Write off against provision 9.4.1 (111,055) – (111,055) (79,769) – (79,769)

Exchange rate difference (3,364) (944) (4,308) 14,127 9,787 23,914

Closing 37,304 109,756 147,060 140,982 41,623 182,605

9.4.1 These represent ‘loss’ category loans balances overdue by more than 360 days which have been written off in accordance with the requirements of policy of the Bank.

In terms of paragraph 3.3.1(g) of part C of the DAB Regulations, the write-off does not affect the Bank’s rights to recover the debt due from customers and does not eliminate the borrowers’ responsibility to repay the loan.

9.5 Classification of loans and advances

Classification Note

2016

*Provisioningrates

AFN ‘000

Amountoutstanding

AFN ‘000

ProvisionrequiredAFN ‘000

Provisionheld

AFN ‘000

Standard 4 (a) 1% 3,677,294 36,773 109,588

Watch-list 5% 117,344 5,317 5,317

Substandard 25% 2,301 564 564

Doubtful 9.6 & 9.7 50% 79,509 24,507 31,590

Loss 9.8 100% 22 22 22

Write-offs (22) (22) (22)

– – –

Loans and advances and provision held – 31 December 2016 3,876,448 67,161 147,059

Classification

2015

*Provisioningrates

AFN ‘000

Amountoutstanding

AFN ‘000

Provisionrequired

AFN ‘000

Provisionheld

AFN ‘000

Standard 0% 3,006,806 – 41,623

Watch-list 5% 458,323 22,351 22,351

Substandard 25% 9,338 2,335 2,335

Doubtful 50% 165,990 46,085 116,296

Loss 100% 79,769 79,769 79,769

Write-offs (79,769) (79,769) (79,769)

– – –

Loans and advances and provision held – 31 December 2015 3,640,457 70,771 182,605

* Provisioning rates are as per DAB regulation.

9.6 The Bank has taken provision on outstanding amount of three (2015: four) parties included in doubtful category after deducting amount covered by USAID and ACGF guarantees.

9.7 The Bank has taken extra provision of 40% in addition to the required provision of 50% on one party (2015: 45% on two parties) outstanding balance included in doubtful category on subjective basis.

9.8 As per the DAB Regulation, Article three (part-B) (3.2.1), loan loss provision has been immediately charged off against the reserve for losses. The amount of these loans are AFN 22 thousands (2015: AFN 79,769 thousands).

9.9 Classification of regular, overdue but not impaired and impaired loans and advances to customers in terms of product and overdue time period along with details of loans and advances to customers which are renegotiated during the year, has been disclosed in note 31.2.6.

9.10 The Bank has filed suits for the recovery of loans and advances principal due against the defaulted borrowers amounting to AFN 756,630 thousands (31 December 2015: AFN 777,926 thousands) as at the year end. These suits are pending decisions at various courts. The Bank’s management is of the view that the aforementioned suits will be decided in its favor due to sound legal footings.

10. RECEIVABLE FROM FINANCIAL INSTITUTIONSThis represents non-interest bearing receivable balance due from CSC Bank SAL (CSC). The Bank has entered into an agreement with CSC whereby credit card/debit card holders of various financial institutions can use ATM machines of the Bank and the amount withdrawn including Bank charges will be paid by CSC to the Bank.

11. OPERATING FIXED ASSETS

Note2016

AFN ‘0002015

AFN ‘000

Capital work in progress 11.1 1,362,167 799,377

Property and equipment 11.2 263,175 247,940

1,625,342 1,047,317

11.1 Capital work in progress

Note2016

AFN ‘0002015

AFN ‘000

Advances to suppliers and contractors 281,757 217,760

Advances to related party 11.1.2 1,080,410 581,617

11.1.1 1,362,167 799,377

11.1.1 Movement in capital work-in-progress

2016AFN ‘000

2015AFN ‘000

Opening 799,377 253,975

Additions during the year 586,110 545,402

Transferred to property and equipment (23,320) –

Closing 1,362,167 799,377

11.1.2 This represents payments made to date against the construction of head office building to Mohib Advance Design Construction Company (MADCC), related party of the Bank.


11.2 Property and equipment

LandAFN ‘000

Leaseholdimprovements

AFN ‘000Computers

AFN ‘000

Officeequipment

AFN ‘000

Furniture& fittingsAFN ‘000

ATMsAFN ‘000

VehiclesAFN ‘000

TotalAFN ‘000

Cost

Balance at 1 January 2015 177,568 67,907 87,020 107,181 14,713 80,958 71,152 606,499

Additions – 1,397 3,803 24,804 2,122 14,332 8,851 55,309

Balance at 31 December 2015 177,568 69,304 90,823 131,985 16,835 95,290 80,003 661,808

Balance at 1 January 2016 177,568 69,304 90,823 131,985 16,835 95,290 80,003 661,808

Transfers from CWIP – 4,448 – 1,881 325 13,258 3,407 23,319

Additions – 923 13,089 19,118 597 8,635 206 42,568


Depreciation

Balance at 1 January 2015 – 65,665 67,055 93,448 14,662 63,402 64,831 369,063

Charge for the year – 991 1,631 26,570 617 8,481 6,515 44,805

Balance at 31 December 2015 – 66,656 68,686 120,018 15,279 71,883 71,346 413,868

Balance at 1 January 2016 – 66,656 68,686 120,018 15,279 71,883 71,346 413,868

Charge for the year – 3,682 8,141 21,537 788 10,748 5,756 50,652

Balance at 31 December 2016 – 70,338 76,827 141,555 16,067 82,631 77,102 464,520

Carrying amounts

Balance at 1 January 2015 177,568 2,242 19,965 13,733 51 17,556 6,321 237,436



Useful life 3 to 10 years 3 to 5 years 3 to 5 years 3 to 10 years 5 years 5 years

11.2.1 There were no capitalized borrowing costs related to the acquisition of property and equipment during the year (2015: nil).

12. INTANGIBLE ASSETS

Note2016

AFN ‘000

2015RestatedAFN ‘000

Computer software, licenses and Core deposits 12.1 527,457 572,948

12.1 Computer software, licenses and Core deposits

ComputersoftwareAFN ‘000

Licensefee

AFN ‘000

Coredeposits

AFN ‘000Total

AFN ‘000

Cost

Balance at 1 January 2015 197,254 42,728 542,677 782,659

Additions 86,193 1,169 – 87,362

Balance at 31 December 2015 283,447 43,897 542,677 870,021


Additions 24,942 28,623 – 53,565


Amortization


Charge for the year 31,576 5,754 36,178 73,508



Charge for the year 52,274 10,604 36,178 99,056


Carrying amounts




Useful life 3 to 10 years 3 to 10 years 15 years

13. DEFERRED TAX

2016AFN ‘000

2015AFN ‘000

Deferred tax (assets)/liabilities arising in respect of:

Provision on investments and placements (45,186) (31,784)

Surplus/(deficit) on revaluation of investments 1,391 (5,824)

Accelerated tax depreciation and amortization 22,355 16,967

(21,440) (20,641)



13. DEFERRED TAX CONTINUED

13.1 Movement in temporary differences during the year

Balance as at01 January 2015

AFN ‘000

Recognized in profit or loss

AFN ‘000

Recognizedin equityAFN ‘000

Balance as at31 December 2015

AFN ‘000

Recognized inprofit or loss

AFN ‘000

Recognizedin equityAFN ‘000

Balance as at31 December 2016

AFN ‘000

Deferred tax assets arising in respect of:

Provision on investments and placements – 31,784 – 31,784 13,402 – 45,186

Revaluation reserve on investments (3,255) – 9,079 5,824 – (7,215) (1,391)

(3,255) 31,784 9,079 37,608 – (7,215) 43,795

Deferred tax liabilities arising in respect of:

Accelerated tax depreciation and amortization (11,349) (5,618) – (16,967) (5,388) – (22,355)

(11,349) (5,618) – (16,967) (5,388) – (22,355)

(14,604) 26,166 9,079 20,641 (5,388) (7,215) 21,440

14. OTHER ASSETS

Note2016

AFN ‘0002015

AFN ‘000

Advances to employees 15,734 17,104

Security deposits 8,859 8,288

Prepayments 88,525 112,157

Interest receivable 321,525 248,443

Advance income tax – net 181,739 17,377

Other receivable and advances 390,718 56,516

Money Gram International – –

Receivable from DoJ 14.1 250,605 250,605

Less: Balance written off (250,605) (250,605)

– –

1,007,100 459,885

14.1 Receivable from DoJThis represents receivables from the United States Government department, Department of Justice (the “DoJ”). The DoJ seized an amount of AFN 565,701,000 (equivalent to USD 10,100,000) from the Bank’s account with Standard Chartered’s branch in New York. Pursuant to Title 18, U.S. Code Section 981(k), the United States sought to reach the customer’s Afghan-based accounts by seizing funds from the Bank’s correspondent account in the United States. The United States has not alleged any wrongdoing against the Bank. In September 2013, the United States returned to the Bank approximately USD 5.7 million, plus accrued interest, of the seized funds. The United States then moved to strike AIB’s claim as to the remaining monies. In September 2015, that motion was denied as to all but USD 147,939, leaving approximately USD 4.1 million at issue. AIB has had some discussions with the U.S. government regarding settlement of the funds, but the U.S. government has advised that it is unable to engage in further discussions given the pendency of customer’s competing claim to the same money. The U.S. government has moved to strike customer’s claim, and, if the motion is granted, the Bank intends to pursue settlement discussions with the U.S. government. However, on prudent basis, the Bank has made provision of AFN 250,605 thousands in its books of account.

15. CUSTOMERS’ DEPOSITS

Note2016

AFN ‘0002015

AFN ‘000

Current deposits 51,180,050 55,862,674

Saving deposits 15.1 151,699 132,679

Term deposits 15.2 1,091,490 683,798

Islamic deposits 15.3 364,619 253,443

Cash margin held against bank guarantees and letters of credit 1,289,784 1,064,932

54,077,642 57,997,526

15.1 Saving deposits carry interest @ 3% p.a. (2015: 3% p.a.).

15.2 Term deposits carry 0.25% to 0.75% interest rates per annum (2015: 0.75% p.a.).

15.3 Current and saving Islamic deposits stand at AFN 81,065 thousands (2015: AFN 38,338 thousands) and AFN 283,554 thousands (2015: AFN 215,130 thousands) respectively.

16. OTHER LIABILITIES

Note2016

AFN ‘0002015

AFN ‘000

Accruals and other payables 53,899 45,917

Amounts pending transfers to customers’ accounts 16.1 26,708 5,882

Provision for bonus to employees 15,238 33,240

Payable to Money Gram International – 365

Retention money payable 67,467 67,807

Others 29,756 54,354

193,068 207,565

16.1 This represents amounts received on behalf of the customers, however not credited in the respective customers’ accounts due to incomplete identification data.


17. SHARE CAPITAL

2016 2015

30,000,000 (2015: 30,000,000) authorized ordinary shares of USD 1 each USD ‘000 30,000 30,000

AFN ‘000 1,465,071 1,465,071

Issued, subscribed and paid-up – 30,000,000 (31 December 2015: 30,000,000) ordinary shares of USD 1 each fully paid in cash AFN ‘000 1,465,071 1,465,071

Pursuant to letter no.918/703 dated 17 May 2010 issued by Da Afghanistan Bank (DAB), the Bank complies with the minimum paid-up capital requirement for commercial banks in Afghanistan amounting to AFN 1,000,000 thousands (equivalent to US $ 20,000 thousands).

Issued, subscribed and paid up capital comprises 50% holding by Horizon Associates LLC and 50% holding by Wilton Holding Limited (31 December 2015: 7.5% holding by Asian Development bank (ADB), 46.25% holding by Horizon Associates LLC and 46.25% holding by Wilton Holdings Limited).

During the year ADB sold its 7.5% shareholding in the Bank to the remaining two shareholders (i.e. Horizon Associates LLC and Wilton Holdings Limited) in equal proportions.

During the year the Bank has paid an Interim dividend of AFN 11.17 per share amounting to AFN 335.10 million.

18. CAPITAL RESERVESArticle 93 “Reserve Capital” of Corporations and Limited Liability Companies Law of Afghanistan, requires that Bank should transfer 5% of its profit to Capital Reserve to compensate for future possible losses to the extent such capital reserves reaches upto 25% of the Bank’s capital. The Bank’s capital reserves as at 31 December 2016 stood at AFN 218,600 thousands (31 December 2015: AFN 192,647 thousands).

19. CONTINGENCIES AND COMMITMENTS

19.1 Contingencies

Note2016

AFN ‘0002015

AFN ‘000

Guarantees 19.1.1 3,404,690 2,286,697

19.1.1 These represent bid bonds and performance based guarantees issued by the Bank.

19.1.2 The Bank is in various litigations with its customers and clients. However, the management believes that these litigations will not have material impact on the financial statements of the Bank.

19.1.3 Afghanistan tax legislation is subject to varying interpretations with changes occurring from time to time. Further, the interpretation of tax legislation by tax authorities as applied to the transactions and activities of the Bank may not coincide with the treatment used in the interim financial statements. As a result, transactions may be challenged by tax authorities and the Bank may be assessed additional taxes and penalties, which can be significant. The periods remain open to review by the tax authorities with respect to tax liabilities for five years.

19.2 Commitments

2016AFN ‘000

2015AFN ‘000

(a) Undrawn loan and overdraft facilities 848,222 1,894,331

(b) Commercial letters of credit 149,945 311,043

998,167 2,205,374

20. INTEREST INCOME

2016AFN ‘000

2015AFN ‘000

Interest income on:

Balances with DAB and other banks 13,776 52,516

Placements 221,658 152,931

Investments 392,848 377,102

Loans and advances to customers 442,989 498,193

1,071,271 1,080,742

21. INTEREST EXPENSE

2016AFN ‘000

2015AFN ‘000

Interest expense on customers’ deposits 13,346 6,016

22. FEE AND COMMISSION INCOME

2016AFN ‘000

2015AFN ‘000

Fee and commission income on:

Loans and advances to customers 34,074 36,030

Trade finance products 9,670 18,797

Cash withdrawals/Cash transfers 448,070 428,091

Customers’ account service charges 114,843 52,798

Income from ATMs 57,068 52,864

Income from guarantee arrangements 74,297 37,389

Payroll services 41,403 35,522

Others 8,924 18,057

788,349 679,548

23. FEE AND COMMISSION EXPENSE

2016AFN ‘000

2015AFN ‘000

Guarantee commission 11,046 9,606

Bank charges 20,446 7,066

31,492 16,672

24. INCOME FROM DEALING IN FOREIGN CURRENCIES

2016AFN ‘000

2015AFN ‘000

Forex income 144,023 193,633

25. OTHER INCOME/(EXPENSE)

2016AFN ‘000

2015AFN ‘000

Loans and advances written off recovered 54,490 14,950

Cash balances lost in Kunduz branch due to insurgency event – (17,371)

Others 1,227 1,216

55,717 (1,205)



26. GENERAL AND ADMINISTRATIVE EXPENSES

Note2016

AFN ‘000


Salaries and benefits 378,388 381,101

Rental, rates and taxes 98,019 79,409

Electricity, generator and fuel 32,961 35,380

Repairs and maintenance 65,551 64,138

Security cost 84,869 65,962

Depreciation 11.2 50,651 44,805

Amortization 12.1 99,056 73,508

Directors fee and their meeting expenses 20,103 20,010

Travelling and accommodation 39,223 37,888

Communication, swift and internet 53,461 51,352

Stationary and printing 30,385 40,294

Legal and professional charges 78,203 120,346

Investment management fee to investment advisors 22,661 24,532

Audit fee 4,823 5,562

Marketing and promotion 38,493 40,701

Money service providers charges 858 557

Insurance 135,492 111,496

Subscriptions and memberships 8,676 9,707

Other charges 47,609 30,122

Taxes and penalties 1,062 108

Corporate social responsibility 4,779 2,439

Others 3,979 4,083

1,299,302 1,243,500

27. TAXATION

2016AFN ‘000


Current

For the year 56,857 91,617

56,857 91,617

Deferred

For the year (8,014) (26,166)

48,843 65,451

27.1 Relationship between tax expense and accounting profit

2016AFN ‘000


Accounting profit for the year 567,915 589,316

Applicable tax @ 20% 113,583 117,863

Effect of deferred tax asset previously not recognized on:

- provision on placements 11,887 (14,973)

- provision on investments – (9,175)

- Effect of deferred tax (reversal)/charge (8,014) –

Effect of tax on dividend paid to shareholders (67,019) (28,800)

Others (1,594) 536

48,843 65,451

28. RELATED PARTY TRANSACTIONS

The Bank has a related party relationship with its shareholders, their related entities, directors and key management personnel. The Bank had transactions with following related parties at mutually agreed terms during the year:

Nature of transactions

Directors and other key management personnel

(and close family members)Shareholders and its

associated companies

2016AFN ‘000

2015AFN ‘000

2016AFN ‘000

2015AFN ‘000

(a) Loans and advances to related parties

Loans outstanding at the beginning of the year – – 213,750 483,280

Loans issued during the year – – 410,379 430,709

Loans repayments during the year – – (454,565) (751,995)

Exchange gain – – 7,995 51,756

Loans outstanding at the end of the year – – 177,559 213,750

Interest income earned – – 36,710 49,401

During the year, an amount of AFN 396,634 thousands (2015: 495,059 thousands) was paid to MADCC (related party) on account of contract awarded on arms length basis for the construction of head office building.

Provision on outstanding balances of loans and advances to related parties amounts to AFN 5,327 thousands (2015: AFN 4,275 thousands).

The facilities provided to related parties carries mark-up at interest rates 10% p.a. (2015: 12% to 10% p.a.) payable on monthly basis and are secured against mortgage of residential property and personal guarantees of directors and representative of shareholders of the Bank.

Nature of transactions




2016AFN ‘000

2015AFN ‘000

2016AFN ‘000

2015AFN ‘000

(b) Deposits from related parties

Deposits at the beginning of the year 87,051 196,797 154,206 44,424

Deposits received during the year 411,590 413,378 1,509,946 1,491,958

Deposits repaid during the year (439,765) (542,545) (1,553,423) (1,400,146)

Exchange rate difference (1,474) 19,421 (3,295) 17,970

Deposits at the end of the year 57,402 87,051 107,434 154,206

Interest expense of deposits – – – –

These represent current account of related parties, which carry Nil interest rate (31 December 2015: Nil).

Nature of transactions Note




2016AFN ‘000

2015AFN ‘000

2016AFN ‘000

2015AFN ‘000

(c) Other related party transactions

Fee and commission income – – 5,256 6,092

Directors’ fee 14,351 11,198 – –

Fee and commission expense – – – –

Rental expenses – – 7,892 4,088

Other expenses 8,780 8,519 – –

Capital work-in-progress 28.1 – – 409,170 –

Guarantees issued by the Bank – – 333 10,400

Commercial letters of credit issued including accepted bills and export bills purchased – – 84,423 207,764


28.1 This represents the payment made against the construction of new head office building to Mohib Advance Design Construction Company (MADCC), related party of the Bank.

2016AFN ‘000

2015AFN ‘000

(d) Key Management compensation

Salaries and other short-term benefits 63,012 86,216

63,012 86,216

Key Management personnel of the Bank include the Chief Executive Officer, Deputy Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Head of Commercial Banking and Head of Retail Banking.

29. CASH AND CASH EQUIVALENTS

2016AFN ‘000


Cash in hand and at ATM 1,978,419 1,724,692

Balances with DAB (other than minimum reserve requirement) 4,288,172 11,660,895

Balances with other banks 6,512,681 4,940,306

Placements (with maturity less than three months) 5,679,704 9,845,280

18,458,976 28,171,173

30. EARNINGS PER SHARE – BASIC AND DILUTED

2016 2015

Profit after taxation (AFN ‘000) 519,072 487,687

Weighted average number of ordinary shares – (number in thousand) 30,000 30,000

Earnings per share – Basic and diluted (AFN per share) 17.30 16.26

30.1 There is no dilutive effect on basic earnings per share of the Bank.

31. FINANCIAL RISK MANAGEMENT

31.1 Financial assets and liabilities

31 December 2016

Loans andreceivables

AFN ‘000

Held-to-maturityAFN ‘000

Available-for-sale

AFN ‘000

Other financial liabilitiesAFN ‘000

TotalAFN ‘000

Financial assets

Cash and balances with Da Afghanistan Bank 10,452,572 – – – 10,452,572

Balances with other banks 6,606,085 – – – 6,606,085

Placements – net 19,313,157 – – – 19,313,157

Investments – net – 9,373,342 5,009,236 – 14,382,578

Loans and advances to customers – net 3,729,388 – – – 3,729,388

Receivables from financial institutions 522,484 – – – 522,484

Other assets 736,836 – – – 736,836

41,360,522 9,373,342 5,009,236 – 55,743,100

Financial liabilities

Customers’ deposits – – – 54,077,642 54,077,642

Other liabilities – – – 148,074 148,074

– – – 54,225,716 54,225,715

31 December 2015

Loans andreceivables

AFN ‘000

Held-to-maturity

AFN ‘000

Available-for-sale

AFN ‘000

Other financial liabilitiesAFN ‘000

TotalAFN ‘000

Financial assets

Cash and balances with Da Afghanistan Bank 17,816,406 – – – 17,816,406

Balances with other banks 5,042,671 – – – 5,042,671

Placements – net 19,797,852 – – – 19,797,852

Investments – net – 5,639,776 7,892,609 – 13,532,385

Loans and advances to customers – net 3,457,852 – – – 3,457,852

Receivables from financial institutions 172,482 – – – 172,482

Other assets 330,352 – – – 330,352

46,617,615 5,639,776 7,892,609 – 60,150,000


Customers’ deposits – – – 57,997,526 57,997,526

Other liabilities – – – 174,325 174,325

– – – 58,171,851 58,171,851



31. FINANCIAL RISK MANAGEMENT CONTINUED

31.2 Financial risk factorsThe Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Bank’s financial performance.

The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up to date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.

Risk management is carried out by a Risk Management Department (RMD) under policies approved by the Management Board. RMD identifies, evaluates and manages financial risks in close co-operation with the Bank’s operating units. The Management Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of non-derivative financial instruments. The internal audit is responsible for the independent review of risk management and control environment. The most important types of risk are credit risk, liquidity risk, market risk and other operational risk. Market risk includes currency risk, interest rate and other price risk.

31.2.1 Credit Risk

The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Credit risk is the most important risk for the Bank’s business; management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances, balances with banks and receivable from financial institution, participation purchased and placements with other banks. Credit risk also arises in off-balance sheet financial instruments, such as Bank’s contingencies and commitments. The credit risk management and control are centralized in credit risk management team of Bank and reported to the management team and head of each business unit regularly.

31.2.2 Credit risk measurement

(a) Loans and advances

In measuring credit risk of loans and advances to customers and to banks at a counterparty level, the Bank reflects three components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future development, from which the Bank derive the ‘exposure at default’; and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’).

These credit risk measurements, which reflect expected loss are embedded in the Bank’s daily operational management. The operational measurements can be contrasted with impairment allowances required under IAS 39, which are based on losses that have been incurred at the date of statement of financial position.

(i) Over due balances on loans to customers are segmented into four categories as described in note 3.4(b). The percentage of provision created on such over due balances are as per guidelines issued by DAB and reflects the range of default probabilities defined for each category. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes.

(ii) Exposure at default is based on the amounts, the Bank expects to be owed at the time of default. For example, for a loan this is the face value. For a commitment, the Bank includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur.

(iii) Loss given default or loss severity represents the Bank’s expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation.

(b) Other than loans and advances

Other than loans and advances includes balances with other banks and financial institutions and placements with other banks, investments in bonds and held with DAB, participation purchased and other assets. Judgments and instructions from the Bank’s treasury are being used by the Bank’s management in placing funds with other banks and are viewed as a way to gain better credit quality mapping and maintain a readily available source to meet the funding requirements at the same time when required.

Further, the Bank has banking relationships with financial institutions which have good international reputation and strong financial standing and therefore, probability of default by such financial institutions is low.

31.2.3 Risk limit control and mitigation policies

The Bank manages, limits and controls concentrations of credit risk wherever they are identified – in particular, to individual counterparties and groups, industries and countries.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product and industry sector are approved quarterly by the Management Board.

The exposure to any one borrower is further restricted by sub-limits covering on-and off-balance sheet exposures. Actual exposures against limits are monitored daily.

Exposure to credit risk is also managed through analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations at the time of loan appraisal for initial and subsequent loans.

Some other specific control and mitigation measures are outlined below.

(a) Collateral

The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:

• Mortgages over residential properties

• Charges over business assets such as premises, inventory and accounts receivable

In addition, in order to minimize the credit loss, the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.

(b) Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.


31.2.4 Maximum exposure to credit risk before collateral held or other credit enhancements

Maximum exposure

2016AFN ‘000

2015AFN ‘000

Credit risk exposures relating to on-balance sheet items are as follows:


Placements – net 19,313,157 19,797,852

Investments – net (excluding capital notes with DAB) 12,862,525 11,826,982

Loans and advances to customers – net 3,729,388 3,457,852

Receivables from other financial institutions 522,484 172,482

Other assets 736,836 330,352

43,770,474 40,628,190

Maximum exposure

2016AFN ‘000

2015AFN ‘000

Credit risk exposures relating to off-balance sheet items are as follows:

Guarantees 3,404,690 2,286,697

Undrawn loan and overdraft facilities 848,222 1,894,331

Commercial letters of credit 149,945 311,043

4,402,857 4,492,071

The above table represents credit risk exposure to the Bank at 31 December 2016 and 31 December 2015, taking account of any collateral held or other enhancements attached. For on-balance-sheet assets the exposure set out above is based on net carrying amounts as reported in the statement of financial position.

The percentage of the maximum credit exposure in balances with other banks, placements, investments and loans and advances are as follows (in percentage of the total credit exposure):

2016AFN ‘000

2015AFN ‘000

Balances with other banks 15.09% 12.41%

Placements – net 44.12% 48.73%

Investments – net (excluding capital notes with DAB) 29.39% 29.11%

Loans and advances to customers – net 1.19% 8.51%

31.2.5 Credit quality of financial assets

The credit qualities of Bank’s financial assets have been assessed below by the reference to external credit ratings of counter parties determined by various international credit rating agencies. The counterparties for which external credit ratings were not available, and have been assessed by reference to internal credit ratings determined based on their historical information for any defaults in meeting obligations.

Balances with other banks/FIs Credit rating

Credit ratingagency

2016 AFN ‘000

2015 AFN ‘000

Counter parties with external credit ratings:

Standard Chartered Bank Aa2 Moody’s 4,522,106 2,553,592

Commerzbank Germany Baa1 Moody’s 236,685 2,079,068

Emirates NBD Baa1 Moody’s 661,632 313,209

AkBank, Turkey Baa3 Moody’s 1,956 4,185

State Commercial Bank of Turkmenistan N.A N.A 669,552 -

IDFC Bank BBB- Fitch 474 -

Julius Baer A2 Moody’s 513,653 92,494

Yes Bank, India Baa3 Moody’s 27 122

Placements Credit ratingCredit rating

agency2016

AFN ‘000

Ahli Bank Baa3 Moody’s 1,002,300

Commercial Bank International A1 Moody’s 1,002,300

Commercial Bank of Dubai Baa1 Moody’s 668,200

CIMB Malaysia A3 Moody’s 1,002,300

Al Khaliji Bank A3 Moody’s 1,670,500

Bank of Baroda Baa3 Moody’s 668,200

HDFC Baa3 Moody’s 668,200

IDBI Bank, India Baa3 Moody’s 668,200

Julius Baer Aa2 Moody’s 1,336,400

Masraf Al Rayan A1 Moody’s 668,200

First Gulf Bank Dubai A1 Moody’s 668,200

Union National Bank A1 Moody’s 668,200

United Arab Bank Baa2 Moody’s 835,250

Doha Bank A2 Moody’s 1,002,300

Yes Bank, India Baa3 Moody’s 668,200

Noor Bank Baa1 Moody’s 668,200

National Bank of Fujairah Baa1 Moody’s 668,200

Qatar Islamic Bank A2 Moody’s 1,002,300

Qatar National Bank Aa3 Moody’s 1,002,300

Saudi Hollandi bank A3 Moody’s 668,200

Dubai Islamic Bank Baa1 Moody’s 668,200

Abu Dhabi Commercial Bank A1 Moody’s 1,002,300

Emirates NBD Baa1 Moody’s 704,508

2016AFN ‘000

2015AFN ‘000

Receivables from financial institutions

Counter parties 522,484 172,482

Loans and advances – net

Counter parties 3,729,388 3,457,852

Other assets

Counter parties 736,836 330,352

Investments

Investments held carries various credit rating and ranges from B1 – BBB+ to A – AAA, These investments are managed by investment managers Emirates NBD and Julius Baer under investment criteria defined by the Bank.




31.2 Financial risk factors continued

31.2.6 Loans and advances – net

Note2016

AFN ‘0002015

AFN ‘000

Loans and advances are summarized as follows:

Neither past due nor impaired 3,676,076 2,278,573

Past due but not impaired 167 728,233

Impaired 200,205 633,652

Gross 3,876,448 3,640,457

Less: Allowance for impairment

General (109,756) (41,623)

Specific (37,304) (140,982)

9.4 (147,060) (182,605)

3,729,388 3,457,852

(a) Loans and advances neither past due nor impaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the DAB regulations.

Commercial loans SME loansConsumer

loans

TotalAFN ‘000

OverdraftAFN ‘000

Term loansAFN ‘000



31 December 2016

Regular loans 3,415,649 161,630 80,606 18,191 3,676,076

31 December 2015

Regular loans 2,057,391 160,637 23,876 21,425 2,263,329

(b) Loans and advances past due but not impaired

31 December 2016

Past due up to 30 days 156,246 40,613 3,346 – 200,205

Fair value of collateral 9,005,693 3,150,469 200,918 – 12,357,080

31 December 2015

Past due up to 30 days 699,518 40,613 3,346 – 743,477

Fair value of collateral 10,256,565 1,374,451 134,005 – 11,765,021

Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or indexes of similar assets.

(c) Loans and advances individually impaired

The individually impaired loans and advances to customers before taking into consideration the cash flows from collateral held is AFN 189,865 thousands (2015: AFN 633,651 thousands).

Commercial loans

TotalAFN ‘000

OverdraftAFN ‘000


31 December 2016

Watch 57,146 401,177 458,323

Substandard 9,338 – 9,338

Doubtful 34,114 131,876 165,990

Loss – – –

Total 100,598 533,053 633,651

Fair value of collateral 253,448 568,277 821,725

31 December 2015

Watch 454,733 3,590 458,323

Substandard – 9,338 9,338

Doubtful 129,867 36,123 165,990

Loss – – –

Total 584,600 49,051 633,651

Fair value of collateral 12,251,163 1,541,720 13,792,882

(d) Loans and advances restructured/rescheduled

Restructuring activities include extended payment arrangements and deferral of payments. Restructuring policies and practices are based on indicators or criteria which, in the judgment of management, indicate that payment will most likely continue. These policies are kept under continuous review. Renegotiated loans that would otherwise be past due or impaired at 31 December 2016 were AFN nil (2015: Nil).

Commercial loans and advances:

2016 2015

Loan amount at the time of rescheduling

AFN ‘000At year-end

AFN ‘000

Loan amountat the time of rescheduling

AFN ‘000At year-end

AFN ‘000

- Term loans – – 79,210 49,259

- Overdraft 3,144,475 409,948 96,464 61,210

Total 3,144,475 409,948 175,674 110,469


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31




31.2 Financial risk factors continued

31.2.7 Concentration of risk of financial assets with credit risk exposure continued

(b) Industry sectors

The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by the industry sectors of counterparties.

Government/Public sector

AFN ‘000

Manu-facturingAFN ‘000

AgricultureAFN ‘000

ConstructionAFN ‘000

Telecommu-nication

AFN ‘000

Banks andfinancial

institutionsAFN ‘000

TradersAFN ‘000

FuelsuppliersAFN ‘000

OthersAFN ‘000

TotalAFN ‘000

2016

On balance sheet:Balances with other banks – – – – – 6,606,085 – – – 6,606,085Placements – net – – – – – 19,313,157 – – – 19,313,157Investments – net (excluding capital notes) 10,145,337 100,158 – – 166,175 2,037,660 – – 413,198 12,862,528Loans and advances to customers – net – 463,767 49,175 134,340 – – 1,318,370 938,826 824,910 3,729,388Receivable from financial institutions – – – – – 522,484 – – – 522,484Other assets – – – – – – – – 736,836 736,836

10,145,337 563,925 49,175 134,340 166,175 28,479,386 1,318,370 938,826 1,974,944 43,770,478

Off balance sheet:Contingencies and commitments – 74 – 614,847 71,902 – 401,233 225,246 3,089,555 4,402,857

Total 10,145,337 563,999 49,175 749,187 238,077 28,479,386 1,719,603 1,164,072 5,064,499 48,173,335

2015

On balance sheet:Balances with other banks – – – – – 5,042,670 – – – 5,042,670Placements – net – – – – – 19,797,852 – – – 19,797,852Investments – net (excluding capital notes) 5,879,291 33,944 – – 201,437 3,613,278 – – 2,099,032 11,826,982Loans and advances to customers – net – 592,073 – 34,644 141,667 – 1,604,213 926,500 158,615 3,457,712Receivable from financial institutions – – – – – 172,482 – – – 172,482Other assets – – – – – – – – 330,351 330,351

5,879,291 626,017 – 34,644 343,104 28,626,282 1,604,213 926,500 2,587,998 40,628,049

Off balance sheet:Contingencies and commitments – – – – 37,246 – 580,781 1,528,091 2,345,953 4,492,071

5,879,291 626,017 – 34,644 380,350 28,626,282 2,184,994 2,454,591 4,933,951 45,120,120

31.3 Market riskThe Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads and foreign exchange.

31.3.1 Foreign exchange riskThe Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Management committee sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at 31 December 2016 and 31 December 2015. Included in the table are the Bank’s financial instruments at carrying amounts, categorized by currency.

AED USD EURO GBP INR

AFN ‘000Total

AFN ‘000Converted to AFN ‘000

As at 31 December 2016

AssetsCash and balances with Da Afghanistan Bank – 4,079,571 565,512 465 – 5,807,024 10,452,572Balances with other banks 90,938 5,451,899 1,000,222 62,526 500 – 6,606,085Placements – net – 19,313,157 – – – – 19,313,157Investments – net – 12,862,524 – – – 1,520,055 14,382,579Loans and advances to customers – net – 2,796,380 – – – 933,008 3,729,388Receivables from financial institutions – 496,103 2,941 – – 23,440 522,484Other assets – 277,662 6,444 – – 722,994 1,007,100

Total financial assets 90,938 45,277,296 1,575,119 62,991 500 9,006,520 56,013,365

Liabilities

Customers’ deposits – 45,201,627 1,475,133 82,939 – 7,317,943 54,077,642

Other liabilities – 63,395 105,806 – – 23,867 193,068

Total financial liabilities – 45,265,022 1,580,939 82,939 – 7,341,810 54,270,710

On-balance sheet financial position – net 90,938 12,274 (5,820) (19,948) 500 1,664,710 1,742,655


Total financial assets 715,566 49,189,555 1,287,960 16,623 122 9,044,042 60,253,868

Total financial liabilities – 49,103,044 1,234,961 29,908 – 7,803,938 58,171,851

On-balance sheet financial position – net 715,566 86,511 52,999 (13,285) 122 1,240,104 2,082,017


If the functional currency, at the year end date, strengthens/weakens by 10% against the USD with all other variables held constant, the impact on profit or loss for the period would have been AFN 31,231 thousands higher/lower (2015: AFN 8,651 thousands higher/lower) respectively mainly as a result of exchange gains/losses on translation of foreign exchange denominated receivables and payables.

If the functional currency, at the year end date, strengthens/weakens by 10% against the EURO with all other variables held constant, the impact on profit or loss for the period would have been AFN 582 thousands lower/higher (2015: AFN 5,299 thousands lower/higher) respectively mainly as a result of exchange gains/losses on translation of foreign exchange denominated receivables and payables.

If the functional currency, at the year end date, strengthens/weakens by 10% against the AED with all other variables held constant, the impact on profit or loss for the period would have been AFN 9,094 thousands higher/lower (2015: AFN 71,557 thousands higher/lower) respectively mainly as a result of exchange gains/losses on translation of foreign exchange denominated receivables and payables.

31.3.2 Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. Bank’s investments, loans and advances are primarily linked to EONIA, LIBOR and US Prime.

The table below summarizes the Bank’s exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amount, categorized by the earlier of contractual reprising or maturity dates.

Interest bearingTotal interest

bearingAFN ‘000

Non-interestbearing

AFN ‘000Total

AFN ‘000Up to 1 month

AFN ‘0001 to 3 months

AFN ‘0003 to 12 months

AFN ‘0001 to 5 years

AFN ‘000Over 5 years

AFN ‘000


Assets

Cash and balances with Da Afghanistan Bank 5,236,883 – – – – 5,236,883 5,215,689 10,452,572

Balances with other banks 2,146,777 – – – – 2,146,777 4,459,308 6,606,085

Placements – net 3,006,900 2,646,072 13,660,184 – – 19,313,156 – 19,313,156

Investments – net 2,034,229 1,096,534 1,173,737 9,854,915 223,164 14,382,579 – 14,382,579

Loans and advances to customers – net 406,266 969,558 1,898,353 455,211 – 3,729,388 – 3,729,388

Receivables from financial institutions – – – – – – 522,484 522,484

Other assets – – – – – – 736,836 736,836

Total financial assets 12,831,055 4,712,164 16,732,275 10,310,126 223,164 44,808,783 10,934,317 55,743,100

Liabilities

Customers’ deposits 516,319 33,410 386,074 668,200 – 1,604,003 52,473,639 54,077,642

Other liabilities – – – – – – 148,074 148,074

Total financial liabilities 516,319 33,410 386,074 668,200 – 1,604,003 52,621,713 54,225,716

Total interest reprising gap 12,314,736 4,678,754 16,346,201 9,641,926 223,164 43,204,780 (41,687,396) 1,517,384


Total financial assets 15,165,460 6,903,472 9,929,732 8,014,934 1,205,311 41,218,909 18,931,090 60,149,999

Total financial liabilities 816,477 – – – – 816,477 56,290,442 57,106,919

Total interest reprising gap 14,348,983 6,903,472 9,929,732 8,014,934 1,205,311 40,402,432 (37,359,352) 3,043,080

If the interest increase/(decrease) by 100 bps, the impact on profit or loss for the year would have been AFN 396,401 thousands (2015: AFN 404,024 thousands) lower/higher respectively.

31.4 Liquidity riskLiquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend.

31.4.1 Liquidity risk management process

The Bank’s liquidity management process, includes:

- Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers;

- Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;

- Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and

- Managing the concentration and profile of debt maturities.

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month respectively, as these are key periods for liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets.

Bank Treasury also monitors unmatched medium-term assets, the level and type of undrawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.

31.4.2 Funding approach

Sources of liquidity are regularly reviewed by the Asset Liability Committee (ALCO) to maintain a wide diversification by currency, geography, provider, product and term.




31.4 Liquidity risk continued

31.4.3 Non-derivative financial liabilities and assets held for managing liquidity risk

The table below presents the cash flows payable by the Bank under non-derivative financial liabilities and assets held to manage liquidity risk by remaining contractual maturities at the date of the statement of financial position. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Bank manages the inherent liquidity risk based on expected undiscounted cash inflows.

Up to 1 monthAFN ‘000

1 to 3 monthsAFN ‘000

3 to 12 monthsAFN ‘000

1 to 5 yearsAFN ‘000

Over 5 yearsAFN ‘000

TotalAFN ‘000


Liabilities

Customers’ deposits 52,989,958 33,410 386,074 668,200 – 54,077,642

Other liabilities 193,068 – – – – 193,068

Total financial liabilities (contractual maturity dates) 53,183,026 33,410 386,074 668,200 – 54,270,710

Total financial assets (contractual maturity dates) 23,765,371 4,712,164 16,732,275 10,310,126 223,164 55,743,100


Liabilities

Customers’ deposits 57,313,728 683,798 – – – 57,997,526

Other liabilities 174,325 – – – – 174,325

Total financial liabilities (contractual maturity dates) 57,488,053 683,798 – – – 58,171,851

Total financial assets (contractual maturity dates) 34,096,550 6,903,472 9,929,732 8,014,934 1,205,311 60,149,999

Assets available to meet all of the liabilities and to cover outstanding loans commitment include cash and balances with Da Afghanistan Bank, balances with other banks and receivable from financial institutions, placements, loans and advances to customers and security deposits and other receivables.

31.4.4 Off-balance sheet items

The dates of the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers and other facilities are summarized in the table below.

Not laterthan 1 year

AFN ‘000

1 to 5years

AFN ‘000

Over5 years

AFN ‘000Total

AFN ‘000


Guarantees 2,147,457 1,257,233 – 3,404,690

Undrawn loans and overdraft facilities 848,222 252,880 – 1,101,102

Commercial letters of credit 149,945 – – 149,945

Total 3,145,624 1,510,113 – 4,655,737


Guarantees 1,326,591 1,076,615 – 2,403,206

Undrawn loans and overdraft facilities 1,894,331 – – 1,894,331

Commercial letters of credit 311,043 – – 311,043

Total 3,531,965 1,076,615 – 4,608,580

31.5 Fair value of financial assets and financial liabilitiesLiquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend.

(a) Financial instruments measured at fair value using a valuation technique

The table below analyses financial instruments carried at fair value, by valuation method. The various fair value levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1AFN ‘000

Level 2AFN ‘000

Level 3AFN ‘000

Investments in bonds – available for sale investments – 5,015,701 –

As at 31 December 2016 – 5,015,701 –

As at 31 December 2015 – 5,639,776 –

Valuation technique and key inputs used for investments in bonds were quoted market bid price in active market.

There were no transfers made among various levels of fair value hierarchy during the year.

(b) Financial instruments not measured at fair value

The table below summarizes the carrying amounts and fair values of those financial assets and liabilities which are presented on the Bank’s statement of financial position at value other than fair value.


Carrying Value Fair Value

2016AFN ‘000

2015AFN ‘000

2016AFN ‘000

2015AFN ‘000

Financial assets

Cash and balances with Da Afghanistan Bank 10,452,572 17,816,406 10,452,572 17,816,406

Balances with other banks 6,606,085 5,042,670 6,606,085 5,042,670

Placements – net 19,313,157 19,797,852 19,313,157 19,797,852

Investments – net 14,382,579 8,523,864 14,382,579 8,523,864

Loans and advances to customers – net 3,729,388 3,457,852 3,729,388 3,457,852

Receivables from financial institutions 522,484 172,482 522,484 172,482

Advance to staff, Security deposits and other receivables – net 736,836 330,351 736,836 330,351


Customers’ deposits 54,077,642 57,997,526 54,077,642 57,997,526

Other liabilities 193,068 174,325 193,068 174,325

Off-balance sheet financial instruments

Bank’s guarantees 3,404,690 2,286,697 3,404,690 2,286,697

Bank’s commitments 998,167 2,205,374 998,167 2,205,374

The carrying values of these financial assets and liabilities approximates their fair values as at the date of statement of financial position.

(b) Financial instruments not measured at fair value continued

(i) Investments:

These include investment bonds classified as held-to-maturity which are measured at amortised cost. The fair value of these investments is equal to the carrying amount.

(ii) Loans and advances, other assets and other financial liabilities

Fair value of loans and advances, security deposits and other receivables and all the financial liabilities cannot be calculated with sufficient reliability due to absence of current and active market for such assets and reliable data regarding market rates for similar instruments, so its carrying amount is its fair value. The provision for loans and advances has been calculated in accordance with the Bank’s policy and regulations issued by DAB.

(iii) Off-balance sheet financial instruments

The fair value of the off-balance sheet financial instruments is equal to the carrying amounts.

31.6 The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:

(i) to comply with the capital requirements set by the DAB;

(ii) to safeguard the Bank’s ability to continue as a going concern so that it can continue to be self-sustainable; and

(iii) to maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored regularly by the Bank’s management. DAB requires each bank to maintain its Tier 1 Capital ratio and Regulatory Capital ratio to be at least 6 % and 12 % respectively. The Bank is maintaining this ratio well above the required level.

The table below summarizes the composition of the regulatory capital and ratio of the Bank:

2016AFN ‘000

2015AFN ‘000

Tier 1 (Core) Capital:

Total equity capital 3,901,070 3,421,087

Less: Intangible assets 527,457 305,802

Net deferred tax assets 21,440 20,641


2,833,102 2,570,779

Tier 2 (Supplementary) Capital:

General reserves as per DAB’s regulation, but restricted to 1.25% of total risk-weighted exposure 109,756 41,623


628,828 565,488

Tier 2 (Supplementary) Capital (restricted 100% of Tier 1 (Core) Capital) 628,828 565,488

Regulatory Capital = Tier 1 + Tier 2 3,461,930 3,136,267

Risk-weight categories

2016AFN ‘000

2015AFN ‘000

0% risk weight:

Cash in Afghani and fully-convertible foreign currencies 1,978,419 1,724,692

Direct claims on DAB 9,994,207 17,797,117

Direct claims on other Governments 773,442 –

Others 578,314 –

Total 13,324,382 19,521,809

0% risk-weight total (above total x 0%) – –

20% risk weight:


20% risk-weight total (above total x 20%) 5,288,345 5,002,601

100% risk weight:

All other assets 18,757,182 17,160,097

Less: Intangible assets (527,457) (305,802)

Deferred tax assets (21,440) (20,641)

All other assets – net 18,208,285 16,833,654

100% risk-weight total (above total x 100%) 18,208,285 16,833,654




31.4 Liquidity risk continued

Credit conversion factor

2016AFN ‘000

2015AFN ‘000

0% risk weight:

Undrawn loan and overdraft facilities 848,222 1,894,331

Guarantees 3,391,190 –

0% credit conversion factor total (risk-weighted total x 0%) – –

0% risk-weight total (above total x 0%) – –

20% risk weight:

Commercial letters of credit 149,945 311,043

20% credit conversion factor total (risk-weighted total x 20%) 29,989 62,209

20% risk-weight total (above total x 20%) 5,998 12,442

100% risk weight:

Guarantees 13,500 1,221,765

100% credit conversion factor total (risk-weighted total x 100%) 13,500 1,221,765

100% risk-weight total (above total x 100%) 13,500 1,221,765

Total risk-weighted assets 23,516,128 23,070,461

Tier 1 Capital Ratio

(Tier 1 capital as % of total risk-weighted assets) 12.05% 11.14%

Regulatory Capital Ratio

(Regulatory capital as % of total risk-weighted assets) 14.72% 13.59%

32. ISLAMIC BANKING

The Bank started Islamic banking operations in November 2015 with the following Islamic deposit products.

Qardul Hasana Current AccountThis account is profit-free account specifically designed to meet the requirements of the Bank’s customers. Account holders will have easy access to their account at any time to meet their personal or business expenses.

Mudarabah Savings AccountThis account is designed specifically to meet the requirements of customers who authorize the Bank to invest their cash deposits. Customers can deposit or withdraw money at any time they wish, and can earn profits on their savings.

Mudarabah Term Investment DepositThese funds are accepted with different investment periods. The Bank manages and invests the funds aiming at realizing the best profit for the mutual interest of the parties.

Below are the figures relating to Islamic banking

2016AFN ‘000

2015AFN ‘000

Assets

Cash and balances with banks 202,158 178,840

Receivable – Head Office 148,445 65,152

350,603 243,992

Liabilities

Payable to Head Office – –

Deposit – Current 81,065 38,338

Deposit – Saving 246,962 145,345

Deposit – Term Deposit 36,592 69,785

Others – –

364,619 253,468

Accumulated losses (14,017) (9,476)

350,602 243,992

General and administrative expenses net off (14,017) (10,781)

33. PRIOR PERIOD ADJUSTMENT

“During the year, the Bank has carried out an exercise to value the core deposits acquired as a result of acquisition of Standard Chartered Branch Afghanistan operations in 2012. The core deposits have now been recognized as a definite life intangible asset (see note 12). Previously, in 2012, the management recognized the difference between the consideration paid and fair value of net asset acquired as goodwill while no separate intangible assets were identified, valued and accounted for in the financial statements of the Bank.

The above adjustment has been accounted for in accordance with the requirement of International Accounting Standard – IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” and consequently, comparative figures in the statement of financial position and the statement of comprehensive income have been restated. The financial impact of the restatement on these financial statements is as follows:”

As originallyreportedAFN ‘000

Prior yearAFN ‘000

RestatedAFN ‘000

Balances as of 01 January 2015

Statement of financial position

Intangible assets 255,770 303,324 559,094

For the year ended 31 December 2015

Statement of comprehensive income

General and administrative expenses 1,207,322 36,178 1,243,500

Balances as of 01 January 2016

Statement of financial position

Intangible assets 305,802 267,146 572,948

34. GENERAL

The figures in this financial information have been rounded off to the nearest in thousands in AFN.

35. DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue by the Board of Supervisors of the Bank on 11 March 2017.



Documents

Independent Auditor’s Report FS 2016.pdf · Independent Auditor’s Report Annual Report 2016 21. Statement of Financial Position As at 31 December 2016 Note 31 December 2016 AFN